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Online Retail in China

“It is ‘one of the few bright spots in the Chinese economy,’ says Zeng Ming. He is talking about e-commerce. Mr Zeng, the chief strategy officer for Alibaba, a giant Chinese internet firm, predicts that digital transactions on his firm’s platforms will top 1 trillion yuan ($159 billion) this year—more than Amazon’s and eBay’s combined. That is a bold claim; but consider what happened on Singles Sunday.

Invented a few years ago by students and seized upon by digital marketers, this festival for lonely hearts falls annually on the 11th day of the 11th month (since 1 is the loneliest number). It is like St Valentine’s Day, only worse. Singletons shower each other with tender gifts: a barrage of pearls; a storm of sweets. This November 11th they spent a staggering 19 billion yuan on Alibaba’s online platforms—a fourfold increase on a year ago, and more than double what Americans spent online last Cyber Monday (the Monday after Thanksgiving, when retailers urge Americans to shop online). More than 100m purchases were logged, accounting for 80% of the packages shipped that day.”

(Taken from The Economist ‘Pity the Parcel People’, 17th November)

These numbers are staggering.

The article goes on to describe the fierce competition between retail giants for 5% of total retail sales in the country being done online (roughly the same as the US market). Competition between online and offline retailers, as well as in between themselves, sucking the margins out of their businesses. In contrast to the US market though, the current Chinese market is fragmented, barely visible outside big cities, inefficient and currently with a much lower % of their population online. So it seems the default strategy is to cut deep into margins and hope to be the last man standing.

There should be no doubt that as their market matures, it will eclipse eCommerce in the US and Europe. From Zeng Ming at Alibaba again:

“…legions of Chinese have yet to go online. As they do so, Alibaba will be watching, recording and analysing their shopping habits. The firm is devising a “big data” strategy. It hopes to help vendors harness customer information quickly and share insights among themselves. This could allow them to accelerate product-design cycles. The firm’s lofty ambition is to help China move towards ‘mass customisation’ and ‘user-generated innovation’—turning trendy jargon into reality. ‘The entire supply chain will sit on e-commerce,’ insists Mr Zeng. ‘It will be not just a tool, but the heart of the entire economy.’”

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